These sector models are designed to track the probability of an individual sector producing a superior risk-adjusted return relative to the benchmark index. The sectors conform to the GICS Level 1 definitions. All calculations are based on total returns in local currency, and are updated weekly based on the price as at the close of business every Friday.

As with our multi-asset and regional equity models, the probability of an excess return is also the weight of that that sector in the portfolio. In order to make the process more compatible with the traditional approach to sector strategy, we express all weights as over and underweights relative to benchmark. This has the benefit of making the recommendations adaptable to any benchmark.

The layout of each report is exactly the same. The first five slides track the ranking and the weights of each sector over the last 26 weeks. The last three slides show how process has performed over the last five years, relative to the index, and give a very brief overview of the way in which we have arrived at the data for in each sector.

In the middle section, we show two charts for each sector. The one on the left-hand side shows how the PRATER has changed on a weekly basis over the last two years. This calculation is based on the average of 20 sample periods, each ending as at the previous Friday, but whose start date varies from minus 52 to minus 14 weeks. We do this to reduce the impacts of base effects, the sensitivity of the output to different dividend payment dates.

The chart on the right-hand side is the “probability curve” which we regard as one of the most important innovations to come out of our process. Underlying each curve are the 20 data points that go to make up the average for the last data point on the left-hand chart (and the same data 4 weeks ago). If the curve is convex and slopes from bottom left to top right it suggests that our probability of superior risk-adjusted returns has improved in recent weeks. If the chart is concave and sloped from top left to bottom right. It suggests that the probability of a superior-risk-adjusted return has deteriorated.

Useful tips:
You can use the arrows in the top band to scroll through the report pack, or in most browsers (not iPad, though), the scroll bar on the right of the window. Click on the arrow icon if you want open the report in a printable format.

If you want to compare the outlook for the same sector (say energy) in each region, open up each presentation, go to the energy page, and then click from one report to another to see how they compare.